Are the bears on the prowl? Photos: Alamy, Aurora Photos, Getty Images. Source: Bloomberg Last week’s market mayhem was made worse by some of the innovations we’ve created to try to control risk. Exchange Traded Funds allow investors to buy and sell large baskets of securities in real time—except when they don’t. Last Monday some of the largest and most diversified ETFs opened down over 30% from their previous close—way below where they should have been based on their holdings. When the market sold [...]

Can we retire on spare change? Photo: Skeeze. Source: Pixabay It’s worth thinking about. After all, most of us have coins in our pockets after running errands or grabbing a cup of coffee. What would happen if we invested that money, instead of losing it in the couch? The short answer is, it depends. It depends on how much we save, how long save, and what the return is. So let’s assume you’re a 50-something who has about $2 of loose change each workday--$10 [...]

What’s wrong with the economy? Photo: Arielle Jay. Source: Morguefile Economic growth seems to have stalled. Since the last recession, GDP has grown at a measly 2% real rate. To put that into context, economic growth after a significant downturn usually booms, as it did after the recessions in the ‘60s, ‘70s and ‘80s. In the four years following those recessions, the economy average 5% growth. But in the ‘90s and early ‘00s, we only grew 3%. And this recovery has been anemic. Some [...]

Why do the Saudis keep pumping oil? Saudi Arabia’s “Empty Quarter.” Photo: Nepenthes. Source: Wikipedia Oil prices are down over 50% from a year ago. They’re at a six-year lows, and apart from the Financial Crisis, the last time we saw crude below $40 was in 2004. If prices stay this low, gasoline should cost less than $2 per gallon soon. Basic economics teaches that when prices fall, producers adjust by reducing their output. After all, higher prices made it profitable to bring more [...]

Are global markets melting down? Photo: Cai Tjeenk Willink. Source: Wikipedia Yesterday felt like one of the most bizarre days I’ve seen in the 30 or so years I’ve been following the markets. I’ve seen selloffs, panics, corrections, and crashes. This wasn’t like any of them. It had its own peculiar logic. It started out with some follow-through from last week. Since the sell-off started with China, it made sense that China would lead in any further market action. When I woke up, I [...]

Is this the beginning of a currency war? Ruins of Guernica. Photo: Bundesarchiv, Bild 183-H25224. Source: Wikipedia It sure feels like it. The Chinese devalued, then Malaysia, Vietnam, and Kazakhstan. Asian stock markets have hit the skids, impacting other markets around the world. The Dow has fallen over 10% since it peaked in May. In the face of the market’s turbulence the Fed may have to put off raising rates. China’s modest devaluation initially seemed a normal reaction to the rise in the Dollar, [...]

Are oil prices close to a bottom? Source: US Department of Energy A year ago oil prices had just started falling. Many thought that the pullback was temporary. Now the price of crude oil has plunged almost 60%, and producers are still pumping as much oil as possible—Saudi Arabia, Iraq, Russia, US shale drillers. It seems like they’re playing a global game of chicken, daring one another to cut production first. And with a deal pending to end the international sanctions on Iran, they [...]

How do we control risk? Photo: Douglas Tengdin Good investing is like good building. You can’t really judge the quality of the work until something goes wrong. This summer we’ve been remodeling our kitchen. It’s been an adventure. Changing the flooring exposed our plumbing (I’m not making this up …), which needed to be brought up to code. As we got into the project, other areas had to be addressed—electrical, insulation, windows. We found that our quirky house had a lot of issues—issues that [...]

How do we manage risk? Photo: Dodgerton Skillhause. Source: Morguefile The first step is to acknowledge that it’s there, and it’s not our friend. Unworried investors are their own worst enemies. The Financial Crisis came about mainly because investors thought they were living in a low-risk world. They purchased novel and complex instruments in greater amounts than ever before. They borrowed money to buy them, which multiplied losses when they had to sell. Leverage works both ways. The world is always risky. It’s not [...]

What is financial risk? Photo: Vanio Beatriz. Source: Wikipedia Risk is the chance that something bad will happen. When we invest, we don’t want bad things to happen to our money. So we try to avoid risky situations. The problem is, there’s no way to insure against all the risks we face with our money. There seems to be an infinite number of flavors of financial risk: credit risk, liquidity risk, inflation risk, longevity risk, shortfall risk, earnings risk, market risk, fraud risk. The [...]

The Global Market Update is curated by Douglas Tengdin, CFA an employee of Charter Trust Company. The opinions expressed herein are those of the author and do not necessarily represent the views of Charter Trust Company. Investments may involve investment risk, including the possible loss of value.

Copyright 2017 | All Rights ReservedNothing contained in this communication should be construed as investment advice.